Download - NPA CompromiseSettlement

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Chapter/ ModuleManagement of NPAs CompromiseSettlements

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Welcome

Voice-over Text

Welcome to the course on Management of NPAs Compromise

Settlements.

Welcome to the course on the Management of NPAs Compromise Settlements.


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Objectives

Voice-over Text

On completion of this course, you will be familiar with: Definition of NPA; Objectives of NPA management; Fundamental requirements of negotiation; Negotiating for compromise settlements; Guidelines for settlement through the compromise

route; Important guidelines on compromises; Screening committees; and One Time Settlement of NPAs in Small & Medium

Enterprises.

Target Group:

This course is meant for the fresh and existing staffs of StateBank of India.

On completion of this course, you will be familiar with: Definition of NPA; Objectives of NPA management; Fundamental requirements of negotiation; Negotiating for compromise settlements; Guidelines for settlement through the compromise route; Important guidelines on compromises; Screening committees; and One Time settlement of NPAs in Small & Medium Enterprises.

Target Group:

This course is meant for the fresh and existing staffs of State Bank of India.

Every care has been taken to incorporate all current developments of the bank as on1st January 2010. If any errors and omissions are noticed, please advise the AGM (e-learning) (e-mail: [email protected]) to rectify the same. Your suggestions inthis regard are also welcome.


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Chapter/ Module

Management of NPAs CompromiseSettlements

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Non Performing Asset (NPA)

Voice-over Text

Non Performing Asset means an asset or account of borrower,which has been classified by a bank as sub-standard, doubtfulor loss asset, in accordance with the directions or guidelinesrelating to asset classification issued by The Reserve Bank ofIndia.

The quality of loan asset is the most important factor for thebasic viability of the banking system. The overdue advances ofbanks in India are mounting and in consequence, the non-performing assets in their portfolio are on the rise, impingingon the banks viability. This not only makes inroads in to thebanks profitability but also hampers their ability to recycle the

funds for productive purposes. The trend needs to be reversedand the position is being watched by many includinginternational investors, rating, agencies, correspondent banks,international development agencies etc.

Credit management which includes NPA management is beinggiven paramount importance in our bank as is evident from thepolicy guidelines from time to time.Achieve a Gross NPAs ratio of 1.5% by March 2013 and NetNPAs ratio of 1%.

Non Performing Asset means an asset or account of borrower, which has been

classified by a bank as sub-standard, doubtful or loss asset, in accordance with thedirections or guidelines relating to asset classification issued by The Reserve Bank ofIndia.

The quality of loan asset is the most important factor for the basic viability of thebanking system. The overdue advances of banks in India are mounting and inconsequence, the non-performing assets in their portfolio are on the rise, impingingon the banks viability. This not only makes inroads in to the banks profitability butalso hampers their ability to recycle the funds for productive purposes. The trendneeds to be reversed and the position is being watched by many includinginternational investors, rating, agencies, correspondent banks, internationaldevelopment agencies etc.

Credit management which includes NPA management is being given paramountimportance in our bank as is evident from the policy guidelines from time to time.Achieve a Gross NPAs ratio of 1.5% by March 2013 and Net NPAs ratio of 1%.


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Policy Guidelines

Voice-over Text

The corporate policy is to contain the net NPAs below or equalto 1%, Gross NPAs below or equal to 1.5% by March 2013.

Click Policy guidelines to view the some of the strategies toachieve this goal.

The corporate policy is to contain the net NPAs below or equal to 1%, Gross NPAsbelow or equal to 1.5% by March 2013.

Click Policy guidelines to view the some of the strategies to achieve this goal.

Policy GuidelinesSome of the strategies to achieve this goal could be:

The problem loan review and reporting must be effectivelyoperationalised at all levels as envisaged in the Banks NPA ManagementPolicy.

Monitoring Mechanism must function with greater thrust so that as soonas default takes place in any loan account alerts are sounded and steps toprevent slippages are initiated. Any weakness in the account should berecognized and treated and no account should come up to be classified asNPA in half yearly returns before it has been treated vigorously during theprevious six months.

Strengthening the follow up of legal cases specially those filed with DebtRecovery Tribunals (DRTs).

Initiation of immediate and appropriate actions based on the irregularityreports and periodical inspection reports within the time frame prescribedunder the NPA Management Policy.

Ongoing review of the industry / trade specific loan policies, riskmanagement policy, policy with regard to sectoral deployment of fundsetc., in the light of continually changing environment and taking intoaccount the reasons which led to the accounts turning NPAs since the lastreview.

Ensuring adherence to the laid down instructions with regard to the creditmanagement and meticulous compliance with the relative policies by theControllers.

Micro level budgeting for recovery / upgradation of NPAs and qualitativeperformance reviews.

Greater thrust on compromise settlement as per the NPA ManagementPolicy and the instructions issued by the Corporate Centre pursuant to aguidelines of RBI for setting up of Settlement Advisory Committees. RBIsOTS scheme to be utilised extensively for reducing NPAs.

Rehabilitation and Recovery Branches to play an effective role in targetinghigh value NPA accounts for upgradation and recovery. There should besubstantial recoveries of NPAs of the Circle through these branches.

Sharpening of credit management skills and increased focus on dueapplication there of by organizing appropriate training courses at the StaffTraining Centres / Colleges.

Recoveries in Advances Under Collection Accounts (AUCA). Accounts eligible for write offs should be written off in the beginning of


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NPA analysis

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The objectives of NPA analysis are as follows:NPA analysis helps us to systematise recovery and control.It also tells us that the NPAs can be broadly segregated intotwo groups:

Click on each of the circles to know more about it.

Objectives of NPA analysis:i) to take stock of the situation, by building up the data base.ii) segregating the accounts into identical lots, with regard to approach to

be adopted for recovery.

iii) prioritization as per prospects of recovery.iv) Last, but not the least, for monitoring and control proposes.The above analysis helps us to systematise recovery and control. It also tells usthat the NPAs can be broadly segregated into two groups. Click one each toknow more.a) Recoverable through regular follow up:

By inducing recovery through reminders, both written and oral. Underthis head would also fall those accounts which are fit for rehabilitation.b) Not recoverable through regular follow up:

The accounts falling under this head need to be tackled under one of thefollowing processes:

i)

Fit for initiation of legal action.ii) Fit for negotiated settlements either directly or through initiation of legalaction, which will eventually lead to negotiated settlements.

iii) Fit for waiver of legal action, leading to eventual write-off.iv) Fit for other solutions: like sale of security, merger and acquisition etc.


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Flow diagram of recovery process

Voice-over Text

Of the various processes, recovery through negotiatedsettlements offers the best scope for maximizing NPAreductions at the minimum expense.

From the borrowers angle, the desire is to avoid:

Costly and time consuming legal process,Loss of credibility in the market,The financial default fueled stigma,


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The fear of being damned by banks for all time to come, andThe psychological aversion to be branded as a litigant type.Motivates one to seek compromise settlements with the bank.

It has to be emphasized here that compromise settlement doesnot mean acceptance of any offer. It has to be a negotiated

settlement in which the banks aim is to make best out of theworst.

Of the various processes, recovery through negotiated settlements offers the bestscope for maximizing NPA reductions at the minimum expense. From the Bankspoint of view, the process of compromise settlements enables saving of valuabletime, apart from projecting a helpful / positive image of the Bank. In addition,recycling of the recovered funds add to the interest kitty of the Bank.

From the borrowers angle, the desire is to avoid:i) Costly and time consuming legal process,ii) Loss of credibility in the market,iii) The financial default fueled stigma,iv) The fear of being damned by banks for all time to come, andv) The psychological aversion to be branded as a litigant type. Motivates one

to seek compromise settlements with the bank.

It has to be emphasized here that compromise settlement does not mean acceptanceof any offer. It has to be a negotiated settlement in which the banks aim is to makebest out of the worst.


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Lesson/ Screentitle Quiz

Voice-over Text

Here is an opportunity to check your understanding of what

you have learned so far.

Select the correct options for the statements below. Click

Submit to check your answers.

Here is an opportunity to check your understanding of what you have learned so far.

Select the correct options for the statements below. Click Submit to check your

answers.

The corporate policy is to contain the net NPAs below _________.

a) 4%b) 1 %

c) 6%d) 7%


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Chapter/ Module

Management of NPAs CompromiseSettlements Screen No. 9

Lesson/ Screen

title Practice

Voice-over Text

Here is an opportunity to practice your understanding of what


Key in the correct answer in the space provided. Click Submitto check your answers.

Here is an opportunity to practice your understanding of what you have learned so

far.

Key in the correct answer in the space provided. Click Submit to check your

answers.

1. Monitoring mechanism must function with greater thrust so that as soon asdefault takes place in any loan account alerts are sounded and steps to preventslippages are initiated.2. Stress Asset Management Branch (SAMB) to play an effective role in targetinghigh value NPA accounts for upgradation and recovery.3. Recovery through negotiated settlements offers the best scope for maximizingNPA reductions at the minimum expense.

Chapter/ ModuleManagement of NPAs CompromiseSettlements Screen No. 10

Lesson/ Screentitle

Definition of negotiation

Voice-over Text

Let us look about definition of negotiation.All of us, every day, negotiate on a lesser or a larger scale, inour daily lives. Be it shopping for a new dress, purchasingvegetables, inducing our children to do better in theexaminations adjusting time in the office environment (e.g.coming a little late and making up the time in the evenings,with the permission of the superior), or even, deciding on themenu for dinner, the process of negotiation is at work.Look at the some other definitions of negotiation.


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Let us look about definition of negotiation.

Let us never negotiate out of fear but let us never fear to negotiate- President John F.Kennedy

All of us, every day, negotiate on a lesser or a larger scale, in our daily lives. Be itshopping for a new dress, purchasing vegetables, inducing our children to do betterin the examinations adjusting time in the office environment (e.g. coming a littlelate and making up the time in the evenings, with the permission of the superior), oreven, deciding on the menu for dinner, the process of negotiation is at work.

Negotiation can be defined in simple terms as follows:

A process by which two or more interested parties seek an acceptableexchange for the items they own or control.

It is concerned with resolving conflict between two or more parties, usuallyby exchange of concessions.


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Objective of negotiation

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The objective of negotiation is to maximize benefit. Hence, theunderlying principal is that the parties involved act in such amanner that both sides end up with better off than before,except when mis-judgement, incompetence, or in some cases,downright dishonesty, force the issue otherwise.

Negotiation, obviously, goes beyond selling, since it is

concerned, as stated above, with resolving issues to the benefitof all parties. Of course, negotiation may precede selling. Trustis an important requirement for successful negotiation.

The objective of negotiation is to maximize benefit. Hence, the underlying principal isthat the parties involved act in such a manner that both sides end up with better offthan before, except when mis-judgement, incompetence, or in some cases,downright dishonesty, force the issue otherwise.

Negotiation, obviously, goes beyond selling, since it is concerned, as stated above,with resolving issues to the benefit of all parties. Of course, negotiation may precede

selling. Trust is an important requirement for successful negotiation.


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Fundamental requirements of negotiation

Voice-over Text

Lets look about fundamental requirements of negotiation.

Click on each tab to know in detail.

Lets look about fundamental requirements of negotiation.Click on each tab to know in detail.

Whenever negotiation is considered, the following conditions will apply:

i) Both the parties are willing , in principle, to do a deal:For example, when a borrower approaches with the idea of compromisesettlement both he and the Bank, should in principle, agree to discuss thematter.

ii) There is both agreement and conflict between the parties:In the example of the compromise above, both the borrower and the Bankshould agree that a settlement should take place. The conflict could be, andwould be, regarding the compromise amount, payment terms, release ofsecurity etc.,

iii) There are variables to trade by way of concessions:This means that both sides should not only indicate that they have somethingto give (by way of concessions), but also search for items in each sidespossession that could be exchanged.Continuing with the example of the compromise offer, the variables on theborrowers side could be the compromise amount itself, or the repaymentterms. On Banks side, they could be the accrued interest component,releasing a portion of the security etc.

iv) Both parties are empowered to vary their terms:Sticking to the original positions held at the beginning of the negotiations, willonly lead to failure. Depending upon the situation developing both sidesshould have the authority to vary the terms to close the settlement.In the example, in case the payment terms offered was say 12 months.While the banks position was 3 months, both the parties should have thepower to vary their terms, so that settlement may be reached at say, 6-7months, depending of course, on other factors.


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When should one negotiate?

Voice-over Text

Three basic questions which need to be asked are:

Will negotiation meet my needs?Am I comfortable negotiating in this particular situation?Is the investment of time and energy now, on my part, worththe benefits I may receive, as a result of this negotiation?

Three basic questions which need to be asked are:a) Will negotiation meet my needs?b) Am I comfortable negotiating in this particular situation?c) Is the investment of time and energy now, on my part, worth the benefits I

may receive, as a result of this negotiation?If the answers to all the three questions are yes, negotiation should be proceededwith.


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When should one not negotiate?

Voice-over Text

As a note of caution, certain basic facts about negotiationshould not be overlooked, while placing emphasis on thepositive aspects.Click on the cards to know more.

As a note of caution, certain basic facts about negotiation should not be overlooked,while placing emphasis on the positive aspects:Click on the cards to know more.

i) No negotiation, if one has no bargaining powerThat is if there is nothing really to negotiate for the ability to say NO, is as

important, as the willingness to consider negotiation.ii) No negotiation, when broader objectives might be prejudiced

There is no point in winning a battle if the War is lost. This is speciallylikely when one is emotionally involved in the discussions.

iii) No negotiation, when one is not preparedThe lack of preparation could be due to many factors-lack of all information,pressure of time etc.


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Three crucial elements of negotiation

Voice-over Text

The three crucial elements always present in every negotiation

are:Power, time and information. Click on each element to knowmore.

The three crucial elements always present in every negotiation are:a) Powerb) Time andc) Information

POWER:

Power is defined as the capacity or the ability to get things done.

TIME:

Time has great bearing on the negotiation process. In virtually every negotiation, itis an observed fact that agreements and settlements occur at or beyond the deadline i.e. that psychological point of time at or beyond which either the objectives ofnegotiations are achieved, or the process breaks down. It is therefore, of advantagesto know the other persons cut off point, so that best advantage can be derived.It is important to know that deadlines are more flexible than one really thinks-since,essentially, deadlines are imposed by oneself. However undue delay negates thewhole process.

INFORMATION:

This is the third critical variable in the process of negotiation, and perhaps, one that

is rather ignored. Negotiation is not a limited happening or an event. It is, in fact, anongoing process, and so, it necessarily entails gathering of adequate informationfrom all available sources, much before the actual negotiations usually start.Information gathering enables us to do sound planning and careful preparations,which are vital for any successful negotiation. To fail to plan is to plan to fail, maybe a clich but is an inescapably true statement that for successful negotiation.Proper planning is a must, which in turn means that, information is essential. Basicplanning should not be done while negotiating.

Chapter/ Module Management of NPAs CompromiseSettlements

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Various facets of power

Voice-over Text

There are various facets of power, some of which, relevant forcompromise settlements, are shown here.

Click on each tab to know more about it.


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There are various facets of power, some of which, relevant for compromisesettlements, are shown here.Click on each tab to know more about it.

i) The power of options:Negotiations should not be undertaken with out options, If all the exit doors areclosed, loss of credibility could be the result in the event of the failure ofnegotiations.ii) The power of investment:There is a direct relation between the extent of investment of time and energyand the willingness to compromise.iii) The power of risk taking:Risk taking is best defined as mixing courage with common sense. Calculatedrisk-taking is an essential feature of any negotiation. Risk taking is NOTgambling, since the risk taking involves, apart from the knowledge of odds, a[philosophical] willingness to absorb a loss without regrets.iv) The power of morality:Most people brought up on ethical and moral values have common concepts offairness through the simple question is it fair, or right? can shake up people.However, this power cannot work with people who have different values and forwhom ethics and morals are really no consideration for decision making.v) The power of persistence:Patience and persistence always pay, while negotiating.vi) The power of persuasive capacity:Ones success in persuading some one else depends on three factors:

a) The other person understands what is being said,b) The evidence must be indisputable, andc) The other persons needs and desires must be met.

Of the three, the last is the most important.vii) The power of attitude:To be effective, one should adopt a healthy, assured, it is a game attitude, i.e.an attitude of caring, but not caring that much. Normally, life will not end even if

everything goes wrong and so, getting worked up emotionally will only be adisservice to oneself.Moreover, proper attitude leads to increased confidence & reduced tension,making negotiation more fruitful.


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Lesson/ Screentitle Planning for negotiation

Voice-over TextWhile planning for negotiation, one needs to ask oneself thefollowing questions.


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While planning for negotiation, one needs to ask oneself the following questions. Why negotiation? What is it about? Who will the negotiations be with? What are their objectives? What are ones own objectives? When to negotiate? How to negotiate? How high should be our expectations? What concessions can be given? In what order? Who should negotiate on ones behalf or as part of ones team? What is ones own deadline? Is it flexible? What could be the others deadline? Whether ones assumptions are valid?


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Lesson/ Screentitle Styles of negotiation

Voice-over Text

Ones choice of the style, or manner in which to conduct anegotiation, is a major element for winning better bargains.Basically, there are two fundamental choices:

a) Competitive style which is so designed to maximize only onesides advantage, at a specific cost to the other side. Clearly anaggressive stance, it is referred t as a WIN-LOSE style ofnegotiation, since one side wins, and the other loses.

b) Co-operative style which aims to ensure that both partiesmutually benefit from the negotiation. Hence, it is known as a

WIN-WIN style.

Besides, there is a third style, which could be termed ascombative style, wherein normally, an immutable demand ismade on the other party, which swiftly turns the negotiationinto a debate and creates distrust. If the other party alsohappens to be equally stubborn, negotiation can only end up ina deadlock.

There is also a fourth variety, LOSE-LOSE style, in which,neither side makes any gains; often, they could also end upworse off than when they started. There could be only two

reasons for indulging in such tactics-either to gain a long termadvantage, or due to unskilled negotiations.


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Ones choice of the style, or manner in which to conduct a negotiation, is a major

element for winning better bargains. Basically, there are two fundamental choices:a) Competitive style which is so designed to maximize only one sides

advantage, at a specific cost to the other side. Clearly an aggressive stance, itis referred t as a WIN-LOSE style of negotiation, since one side wins, and the

other loses.b) Co-operative style which aims to ensure that both parties mutually benefit

from the negotiation. Hence, it is known as a WIN-WIN style.

Besides, there is a third style, which could be termed as combative style,wherein normally, an immutable demand is made on the other party, whichswiftly turns the negotiation into a debate and creates distrust. If the otherparty also happens to be equally stubborn, negotiation can only end up in a

deadlock. On the other hand, if the other party surrenders or caves in, thereis again no negotiation, but only a forcing of issues.

There is also a fourth variety, LOSE-LOSE style, in which, neither sidemakes any gains; often, they could also end up worse off than when theystarted. There could be only two reasons for indulging in such tactics-either togain a long term advantage, or due to unskilled negotiations.


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Lesson/ Screentitle

Personal qualities required of negotiators

Voice-over Text

In general, irrespective of what is being negotiated, thenegotiators must possess some personal qualities. They must:Say as little as possibleListen carefully, not only to the verbal messages, but also to

what is unsaid- including body language, stress on words, etc.,Exude confidence: which is the outcome of having sufficientinformation and proper planning.Have ambitious goals.Never concede, without gaining something in return.Have agile minds, with a capacity for sustained concentration.Have credibility and respect for the other sideHave empathy for othersFinally, there are four Ps; positive, placid, patient andprepared.

Which sum up the successful negotiator?Click on the Answer button.


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In general, irrespective of what is being negotiated, the negotiators must possesssome personal qualities. They must:

i) Say as little as possibleii) Listen carefully, not only to the verbal messages, but also to what is

unsaid- including body language, stress on words, etc.,

iii) Exude confidence: which is the outcome of having sufficient informationand proper planning.iv) Have ambitious goals.v) Never concede, without gaining something in return.vi) Have agile minds, with a capacity for sustained concentration.vii) Have credibility and respect for the other sideviii) Have empathy for others

Finally, there are four PsPOSITIVE PLACIDPATIENT PREPARED

Which sum up the successful negotiator?Summing up negotiation is not only an art, but also a well defined scientific process.It entails possession of many traits, which need to be utilized in broadly definedmethods, to enable maximization of benefit.The principles outlined above have universal applicability, for any process ofnegotiations. The possible negotiations scenarios with reference or compromisesettlement, and use of the principles for maximization of returns to the Bank,constitute the next part.


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Lesson/ Screen

title Quiz

Voice-over Text



Select the correct options for the statements below. ClickSubmit to check your answers.


Select the correct options for the statements below. Click Submit to check youranswers.

The four 4P are ___.

a) Positive, placid, patient and preparedb) Placid, principle, prepared, and positive.c) Patient, prepared, placid and possessive.


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Lesson/ Screentitle

Practice

Voice-over Text



Read the statement given below and select the correct option.

Click Submit to check your answers.


far.

Read the statement given below and select the correct option. Click Submit to check

your answers.

1. The objective of negotiation is to maximize benefit. - True2. There are four crucial elements of negotiation - False3. Competitive style is also known as WIN-WIN style. - False4. The statement given below is said by President John F.Kennedy. - TrueLet us never negotiate out of fear but let us never fear to negotiate


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Lesson/ Screentitle

What is compromise settlement?

Voice-over Text

Compromise settlement refers to a negotiated settlementwhere a borrower offers to pay and the Bank agrees to acceptin full and final settlement of its dues an amount less than thetotal amount due to the Bank under the relative loan contract.Thus, the settlement invariably involves certain sacrifice by theBank (by way of write off and / or waiver) of a portion of itsdues.

Recovery of advances through compromise settlement isaccepted as an effective non-legal remedy by the Bank in caseswhere it is appropriate to adopt this option. It is not possible,at the same time, to lay down precise guidelines which can befollowed uniformly in all compromise cases, as each offer is

unique in the context of the circumstances necessitating itsconsideration as a recovery option. However, certain basicprinciples and other parameters to be kept in view by thebranches and their controllers.Why compromise?

Click Answer button.


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Compromise settlement refers to a negotiated settlement where a borrower offers topay and the Bank agrees to accept in full and final settlement of its dues an amountless than the total amount due to the Bank under the relative loan contract. Thus,the settlement invariably involves certain sacrifice by the Bank (by way of write offand / or waiver) of a portion of its dues.

Recovery of advances through compromise settlement is accepted as an effectivenon-legal remedy by the Bank in cases where it is appropriate to adopt this option. Itis not possible, at the same time, to lay down precise guidelines which can befollowed uniformly in all compromise cases, as each offer is unique in the context ofthe circumstances necessitating its consideration as a recovery option. However,certain basic principles and other parameters to be kept in view by the branches andtheir controllers.

Why compromise?

Given the fact that the extant legal system is not conducive to expeditious recovery,mainly due to the protracted process, and not rarely, full recovery being impossible,a pragmatic solution is called for. Compromise offers this practical, realistic solution.


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Lesson/ Screentitle

Advantages of compromise

Voice-over Text

Let us look at some advantages of compromise.Click on each tab to know more.i) Saves money, time and manpower

Banks are mainly concerned with recovery of dues, to themaximum possible extent, at minimum expense. By enteringinto compromise settlements, the objective is achieved. Also, alot of executive time is saved because most of the usualproblems / delays associated with court action are avoided.ii) Projects a helpful image of the BankA well-concluded compromise settlement, which results in a

WIN-WIN for the Bank as well as the borrower, is a strongpositive propaganda for the Bank.iii) Expedites recycling of fundsCompromise settlements aim at quick recovery. Recoverymeans funds becoming available for recycling and additional

interest generation.iv) Cleanses Balance SheetWith the NPA level going down, and the additional fundsbecoming available for recycling as fresh advances, the assetquality of the Bank is bound to go up. Improved asset qualitysignifies higher profits by reduced provisions and increasedinterest income. With additions to the reserves, the capitalposition also improves, improving the Capital Adequacyposition.


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Let us look at some advantages of compromise.

Click on each tab to know more.

i) Saves money, time and manpower

Banks are mainly concerned with recovery of dues, to the maximum possible extent,at minimum expense. By entering into compromise settlements, the objective isachieved. Also, a lot of executive time is saved because most of the usual problems /delays associated with court action are avoided.

ii) Projects a helpful image of the BankA well-concluded compromise settlement, which results in a WIN-WIN for the Bankas well as the borrower, is a strong positive propaganda for the Bank. Theimpression generated is that the Bank is capable not only of sympathy, but alsoempathy.

iii) Expedites recycling of fundsCompromise settlements aim at quick recovery. Recovery means funds becomingavailable for recycling and additional interest generation.

iv) Cleanses Balance SheetWith the NPA level going down, and the additional funds becoming available forrecycling as fresh advances, the asset quality of the Bank is bound to go up.Improved asset quality signifies higher profits by reduced provisions and increasedinterest income. With additions to the reserves, the capital position also improves,improving the Capital Adequacy position.

Chapter/ Module

Management of NPAs Compromise

Settlements Screen No. 24Lesson/ Screentitle

Disadvantages of compromise

Voice-over Text

Lets look about disadvantages of compromise.

To sound a note of caution, compromise does not have onlyadvantages. There are definitely drawbacks, some of whichare:1. Compromise involves loss, since full recovery is not possible.In fact, full recovery is not even envisaged, but sacrifice is.

2. It may be viewed as a reward for default, specially if chronicdefault cases are settled by negotiations.

3. It may have a demonstrative effect, and so may vitiate theculture of repayment.

4. There is also the possibility of misuse or, even, malafides,since assessment of situation is highly subjective.


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Lets look about disadvantages of compromise.

To sound a note of caution, compromise does not have only advantages. There aredefinitely drawbacks, some of which are:

1. Compromise involves loss, since full recovery is not possible. In fact, fullrecovery is not even envisaged, but sacrifice is.

2. It may be viewed as a reward for default, specially if chronic default cases aresettled by negotiations.

3. It may have a demonstrative effect, and so may vitiate the culture ofrepayment.

4. There is also the possibility of misuse or, even, malafides, since assessmentof situation is highly subjective.


Screen No. 25

Lesson/ Screentitle Negotiating for compromise

Voice-over Text

Compromise entails discussion, or a series of discussions,between the Bank and the borrower, considering variousrelevant factors. The discussions are aimed at coming to asettlement about the amount which the borrower is willing togive, and that which the Bank is willing to accept. Naturallythis process involves sacrifice on both sides, and, therefore,proper negotiation is a must. It does not imply that any offermade is accepted.

It should always be borne in mind that while the Bank has only

one option- to recover the money lent-the borrower has twoalternatives to pay or to default. If he thinks that he can getaway by defaulting, he will have no reason to repay.

Hence, it is essential that by constant and regular follow up,and by convincing him that default would entail unwarrantedcosts by way of litigation, loss of credibility, adverse marketpublicity etc., the borrower should be made to realize that it isin his own best interests to repay. Only if the borrower isconvinced that there is no escape, he will come to thenegotiating table, even when he is in default due to variouscircumstances quite beyond his control.


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Compromise entails discussion, or a series of discussions, between the Bank and theborrower, considering various relevant factors. The discussions are aimed at comingto a settlement about the amount which the borrower is willing to give, and thatwhich the Bank is willing to accept. Naturally this process involves sacrifice on bothsides, and, therefore, proper negotiation is a must. It does not imply that any offer

made is accepted.

It should always be borne in mind that while the Bank has only one option- torecover the money lent-the borrower has two alternatives to pay or to default. Ifhe thinks that he can get away by defaulting, he will have no reason to repay.

Hence, it is essential that by constant and regular follow up, and by convincing himthat default would entail unwarranted costs by way of litigation, loss of credibility,adverse market publicity etc., the borrower should be made to realize that it is in hisown best interests to repay. Only if the borrower is convinced that there is noescape, he will come to the negotiating table, even when he is in default due tovarious circumstances quite beyond his control.


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Lesson/ Screentitle

Fundamentals of negotiating for compromise

Voice-over Text

We shall now examine the various scenarios of negotiation.Three aspects present in any compromise offer need to be keptin mind. Click on the next button to learn more.

Offer made by the borrowers A: being the net presentvalue [NPV] of the cash flows arising out of the proposal,multiplied by the probability of the materializing.

Possible recoveries from alternate sources B: being thenet present value of cash flows arising from the bestalternative: e.g: legal action, forced sale, winding up, merger,rehabilitation etc.

What the bank expects C: being the aspiration level i.e.the goal which the Bank attempts to attain, in monetary termsas recovery.Obviously, A has to be measured against B and C, either for

acceptance or rejection.


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We shall now examine the various scenarios of negotiation. Three aspects present inany compromise offer need to be kept in mind. Click on the next button to learnmore.

i) Offer made by the borrowers A: being the net present value [NPV] ofthe cash flows arising out of the proposal, multiplied by the probability of

the materializing.

ii) Possible recoveries from alternate sources B: being the net presentvalue of cash flows arising from the best alternative: e.g: legal action,forced sale, winding up, merger, rehabilitation etc.

iii) What the bank expects C: being the aspiration level i.e. the goalwhich the Bank attempts to attain, in monetary terms as recovery.

Obviously, A has to be measured against B and C, either for acceptance orrejection.


Screen No. 27

Lesson/ Screentitle

Possible negotiation scenarios

Voice-over Text

In view of these variables, A, B and C, as described in theprevious screen, five possible scenarios can be thought of fromthe view points of borrower and Bank.

a) A>B>COffer by borrower > possible recovery from alternatesources > Banks aspiration leveli) Borrower: Has offered reasonable settlement,

unaware of Banks own goals or has deliberatelypitched the offer higher than the alternativeavailable.

ii) Bank: Low expectation would naturally be happy atthe offer. Under this scenario, there is hardly anyscope for negotiation, unless the Bank is able todiscern the real reasons for which the borrower hasmade this high offer, and tries to extract a littlemore, if possible.

Click on next button to see next scenario.

b) A>C>B i.e.Offer by borrower > Banks aspiration level > Possible recoveryfrom other alternatives

i) Borrower: Has given high initial offer to quicklysettle the deal. Possibly has other pressing work toattend to, or desires to preserve goodwill for futureplans [more ambitious than at present]. Let us getit over with seems to be motto.


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ii) Bank: By keeping the aspiration level higher thanthe alternatives available, Bank has done itshomework and is prepared.

c) B > A > C i.e.Recovery from other alternatives > Offer by borrower > Banks

aspiration levelii) Borrower : Is possibly aware of the low

expectations of the Bank, and so pitches the offerhigher than Banks expectations possible due to:a) Wanting quick settlement, and/orb) Wanting to save the securities offered to the

Bank.iii) Bank: Possibly in a hurry to settle the compromise,

Bank does not appear to have done its homework.Under this scenario, Bank is not in a position ofstrength and so is unable to negotiate a settlementthat would maximize the recovery.

d) B > C > A i.e.Recovery from other alternate sources > Banks aspirationlevel > Offer by borrower

i) Borrower: Is possibly aware that the Banksexpectations are low and is, therefore, trying todrive a hard bargain.

ii) Bank: Has not examined all options properly, sincethe expectations are lower than the alternativesavailable. Possibly in a hurry to settle.

e) C > A > B i.e.Banks aspiration level > Offer by borrower > Recovery fromalternate sources

i) Borrower: Keeps the offer low, but higher than thealternatives available, because he is interested in aproper settlement. Is also possibly aware that thebanks options are limited.

ii) Bank: Has set ambitious goals, after properly doingits homework and evaluation of all possiblealternatives, wishes to drive a hard bargain.

In view of these variables, A, B and C, as described in the previous screen, fivepossible scenarios can be thought of from the view points of borrower and Bank.

a) A>B>COffer by borrower > possible recovery from alternate sources > Banks aspirationleveliii) Borrower: Has offered reasonable settlement, unaware of Banks own

goals or has deliberately pitched the offer higher than the alternativeavailable.

iv) Bank: Low expectation would naturally be happy at the offer. Under thisscenario, there is hardly any scope for negotiation, unless the Bank is ableto discern the real reasons for which the borrower has made this highoffer, and tries to extract a little more, if possible.


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Click on next button to see next scenario.

b) A>C>B i.e.Offer by borrower > Banks aspiration level > Possible recovery from otheralternatives

iii) Borrower: Has given high initial offer to quickly settle the deal. Possiblyhas other pressing work to attend to, or desires to preserve goodwill forfuture plans [more ambitious than at present]. Let us get it over withseems to be motto.

iv) Bank: By keeping the aspiration level higher than the alternativesavailable, Bank has done its homework and is prepared.

c) B > A > C i.e.

Recovery from other alternatives > Offer by borrower > Banks aspiration leveliv) Borrower : Is possibly aware of the low expectations of the Bank, and so

pitches the offer higher than Banks expectations possible due to:a) Wanting quick settlement, and/orb) Wanting to save the securities offered to the Bank.

v) Bank: Possibly in a hurry to settle the compromise, Bank does not appearto have done its homework. Under this scenario, Bank is not in a positionof strength and so is unable to negotiate a settlement that wouldmaximize the recovery.

d) B > C > A i.e.Recovery from other alternate sources > Banks aspiration level > Offer by borrower

iii) Borrower: Is possibly aware that the Banks expectations are low and is,therefore, trying to drive a hard bargain.

iv) Bank: Has not examined all options properly, since the expectations arelower than the alternatives available. Possibly in a hurry to settle.

e) C > A > B i.e.

Banks aspiration level > Offer by borrower > Recovery from alternate sourcesiii) Borrower: Keeps the offer low, but higher than the alternatives available,because he is interested in a proper settlement. Is also possibly awarethat the banks options are limited.

iv) Bank: Has set ambitious goals, after properly doing its homework andevaluation all possible alternatives, wishes to drive a hard bargain.


Screen No. 28

Lesson/ Screen

title

Quiz

Voice-over Text



Key in the correct answer in the space provided. Click Submit

to check your answers.


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answers.

1. A well-concluded compromise settlement, which results in a WIN-WIN for theBank as well as the borrower, is a strong positive propaganda for the Bank.


Screen No. 29

Lesson/ Screentitle

Practice

Voice-over Text


you have learned so far.Match the table 1 with table 2. Click Submit to check youranswers.


far.

Match the table 1 with table 2. Click Submit to check your answers.

TABLE 1 TABLE 2C > A > B Offer by borrower >

possible recovery fromalternate sources >Banks aspiration level

B > C > A Recovery from otheralternatives > Offer byborrower > Banksaspiration level

B > A > C Banks aspiration level >Offer by borrower >Recovery from alternatesources

A > B > C Recovery from otheralternate sources >Banks aspiration level >Offer by borrower


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Chapter/ Module


Screen No. 30

Lesson/ Screentitle

Basic determinants

Voice-over Text

The basic determinants are causes for default, Need for

a Compromise, Process of Compromise, Modes ofrepayment and Value of security.


a) Causes for DefaultEither willful or as a result of extraneous circumstances beyondcontrol of borrower.

b) Need for a Compromise(i) Borrowers Angle

To avoid litigation. To retain his relationship with Bank. To save his credibility, as well as somethingfinancially. To avoid default fueled stigma. Psychological aversion to be branded as a litigant

type. Financial strength of the Bank to pursue a legal

case to its logical conclusion.

(ii) Banks Angle Maximum recovery at minimum expense. Saves time, money & manpower. Enables recycling of funds otherwise blocked. In case where Banks position is weak, compromise is

definitely in Banks interest.

c) Process of Compromise A negotiated settlement & not an acceptance of any

offer. Objective To strike a deal with minimal sacrifice.

d) Modes of repayment

Largely determined by capacity of obligants. However,endeavour should be to recover major portion of settledamount in one lumpsum.

Probable modes:i) Entire amount in one shot within a reasonable

specified time frame.ii) Down payment, (at least 40%) plus balance in

installments within a maximum period of 12 months.iii) Full payment in installments.

e) Value of security


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Should be independently & realistically assessed. In case of immovable property [real estate] realizable

value should be aimed at, giving due weightage tolocation, condition & occupancy.

The basic determinants are causes for default, Need for a Compromise, Process ofCompromise, Modes of repayment and Value of security.


a) Causes for Default

Either willful or as a result of extraneous circumstances beyond control of borrower.If willful - Compromise best avoided, as a wrong message will otherwise spread.If others Compromise route advocated.b) Need for a Compromise

(ii) Borrowers Angle To avoid litigation. To retain his relationship with Bank. To save his credibility, as well as something financially. To avoid default fueled stigma. Psychological aversion to be branded as a litigant type. Financial strength of the Bank to pursue a legal case to its logical

conclusion.

(ii) Banks Angle

Maximum recovery at minimum expense. Saves time, money & manpower. Enables recycling of funds otherwise blocked. In case where Banks position is weak, compromise is definitely in Banks

interest.

c) Process of Compromise

A negotiated settlement & not an acceptance of any offer. Objective To strike a deal with minimal sacrifice.If security is considered realizable, legal action instead of the soft option ofcompromise is recommended, since such a firm stand would establish Banksdetermination to recover its dues, besides throwing out red signals to otherpotential willful defaulters.

d) Modes of repayment

Largely determined by capacity of obligants. However, endeavour should beto recover major portion of settled amount in one lumpsum.

Probable modes:Entire amount in one shot within a reasonable specified time frame.Down payment, (at least 40%) plus balance in installments within a maximumperiod of 12 months.Full payment in installments.


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e) Value of security

Should be independently & realistically assessed. In case of immovable property [real estate] realizable value should be aimed

at, giving due weightage to location, condition & occupancy.


Screen No. 31

Lesson/ Screentitle

Steps to be taken before acceptance of a compromise proposalfor consideration

Voice-over Text

Let us look about the steps to be taken before acceptance of acompromise proposal for consideration. Click on each tab toknow.

Let us look about the steps to be taken before acceptance of a compromise proposalfor consideration. Click on each tab to know.

a) Means of borrower(s) guarantor(s)

Gathering factual information about obligants is a MUST, for enabling Bank toget the most favourable deal.

Services of outside agencies to ascertain details may be engaged, withapproval of appropriate authorities.

b) Status of Activity

To be reckoned with at the very first stage of negotiation.

When unit is being run on profitable lines, compromise option to be examinedonly if Banks legal position is weak.

When activity is continuing on limited scale and/or stopped/almost stopped, apragmatic approach needs to be adopted.


Screen No. 32

Lesson/ Screentitle Giving shape to a proposal

Voice-over Text

Meaningful negotiations for compromise would take intoaccount the aspects such as the period when the accountturned bad, when the account was transferred to RecalledAssets account etc. To repeat, the guiding principle shouldalways be to realise the maximum, so that the Banks realloss, if not zero, is near zero.


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a) Actual loss: representing the write-off amount, andb) Notional loss: representing the accrued but unapplied interest amount.

The proposal should also detail how the repayment is proposed, whether inone lumpsum or spread over installments. In case of the latter, notional interestneeds to be calculated upto the date of payment of final installment.

It should be made immensely clear to the borrower that accepting thecompromise proposal does not prohibit the Bank from pursuing other alternativemethods for recovery, in case the borrower defaults in repayment. In respect ofsuit filed accounts, the compromise settlements should be through the Court, byway of Compromise Degree, with suitable clauses which would enable the Bankto resort to legal action/resume the action without prior reference to the oppositeparty, in the event of default.

Chapter/ ModuleManagement of NPAs Compromise

Settlements

Screen No. 33

Lesson/ Screentitle

Path taken by a compromise proposal

Voice-over TextLets look at the path taken by a compromise proposal.Click on each of the pages in the flip book to learn more.

Lets look at the path taken by a compromise proposal.

Click on each of the pages in the flip book to learn more.

i) After the negotiations are completed, the branch has to submit a formal proposalon the format designed for the purpose and forward to the controllers. Care shouldbe taken to ensure that there are no gaps in the proposal. This would facilitatespeedy action. More particularly:-

a) The history of the account should be comprehensively recorded, to bring outthe actual reasons for the account going bad. Brief History is not simply acolumn to be filled in.

b) The value of the securities, primary and secondary, both original and thepresent realizable value, as assessed by the branch, should be givencorrectly, since this is crucial for decision making.

c) The status of the documents, enforceability etc. should be properlycommented upon, in those cases where a suit has not been filed.

d) To assess whether the compromise offer is reasonable, the total realiseableamount should be arrived at, by considering the interest chargeable to theaccount since the unit became sick and/or defunct.

ii) At the controlling office, the proposal goes to a Screening Committee, oncompromise, where the proposals are critically evaluated.

iii) The proposal, with the recommendations of Screening Committee, is put up to theappropriate authority through the usual channel for approval.


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Chapter/ Module

Management of NPAs CompromiseSettlements Screen No. 34

Lesson/ Screentitle

Advances to PSUs backed by State Govt. Guarantee

Voice-over Text

In respect of advances to State PSUs which have the backingof the guarantees of the concerned State Governments, thefollowing procedure will be adopted for compromisesettlements of such loan amounts.

In respect of advances to State PSUs which have the backing of the guarantees ofthe concerned State Governments, the following procedure will be adopted forcompromise settlements of such loan amounts.

(a) In these cases, the Bank may accept, at the minimum, the following amounts byway of compromise settlement:

(i) The principal amount due to the Bank. For this purpose, principal amount isdefined as under:

Description Principal Amount

Accounts in which no interest has beenapplied after 31.3.1993 (account inRecalled Assets or live ledger as ondate)

The amount outstanding in RecalledAssets account or in live ledger.

Accounts in which interest has beenapplied after 31.3.1993 (accounts inRecalled Assets or live ledger as ondate)

The amount outstanding in RecalledAssets account or in live ledgerexcluding amount held in INCA, andunrealised interest of previous year (as

reported in the annual advances return)

(iii) Interest on the principal amount, as defined above, will be computed at a rateequivalent to Banks Cost of Carrying Loan (CCL) and on a simple interest basis.

(b) Thus, the elements of the compromise will be only the rate of interest due onthe principal (at CCL, instead of the contracted rate) and the method of computationof the interest. (Simple interest, instead of compounding).

(c) The Cost of Carrying Loan (CCL) comprising const of resources and operatingcost, will be calculated for each year by the Performance Planning & ReviewDepartment, Corporate Centre and advised to circles on request.

(d) Approval: All debt asset swap proposals to be subject to administrativeapproval of appropriate authority. No swap proposals to be sanctioned below CCC.In case of debt-asset swap as part of OTS, the proposal will go through the normalprocess of screening/delegation of powers / control reporting as applicable tocompromises (Not applicable to below CCC)

(e) Control reporting: Approvals for debt-asset swap to be reported to appropriateauthority in the usual manner.


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Screen No. 35

Lesson/ Screentitle

Quiz

Voice-over Text



Key in the correct answer in the space provided.



Key in the correct answer in the space provided.


At the controlling office, the proposal goes to a Screening Committee, on

compromise, where the proposals are critically evaluated.


Screen No. 36

Lesson/ Screentitle

Practice

Voice-over Text

Here is an opportunity to practice what you have learned so far

in this e-course.

The graphic shown here is cross word puzzle.

You will be given 2 questions.

Select your answers from the cross word puzzle.


Here is an opportunity to practice what you have learned so far in this e-course.

The graphic shown here is cross word puzzle.

You will be given 2 questions.

Select your answers from the cross word puzzle.


1. Actual loss representing the write-off amount.2. Notional loss representing the accrued but unapplied interest amount.


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Chapter/ Module


Screen No. 37

Lesson/ Screentitle

Basic principles to be kept in view

Voice-over TextLet us look at some important guidelines on compromises.Click on the numbers one by one.

Let us look at some important guidelines on compromises.Click on the numbers one by one.

1. Under compromise, bank will endeavour to recover its dues to themaximum extent possible with minimum sacrifice after exercising itsright to set off and / or lien against any deposits of theborrower/guarantor lying with the bank.

2. Quantum of compromise amount should be determined based on therealisable value of the security charged to the bank as also banks abilityto take possession of the security and sell it. Value of security should beassessed properly. If considered necessary, services of outside approvedassessor/ valuers can be engaged at reasonable cost.

3. The latest status of the activity of the borrowing entity which seeks acompromise will be taken into reckoning at the very first stage of thenegotiation.

4. In case the borrower has other group companies, influence of thesecompanies or the parent company will be used for a better settlement.

5. Normally, an initial deposit of atleast 5% of the outstanding will be takenfrom the borrower as an evidence of his intention to pursue thecompromise settlement.

6.

Entire compromise amount should be paid preferably in a lumpsum or ininstallments spread over a maximum period of 12 months. Interest at anagreed rate will be charged on the installments. Normally at least 40%inclusive of 5% initial payment would be payable upfront. Source offunds to identified and recorded.

7. Compromise settlement will be arrived at with the borrower/ otherobligants subject to a condition that in the event of any failure to honourany of the terms of the settlement, bank will be entitled to exerciseagainst the borrower/ other obligants all rights, remedies available priorto the compromise settlement. This will include collection from theborrower of the entire amount due prior to the compromise settlement,together with interest there on at the applicable rate.

8. The sanctioning authority must satisfy itself that all possible steps torecover the dues have been taken and that compromise is in the largerinterest of the Bank.


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Screen No. 38

Lesson/ Screentitle

Approach to Compromise

Voice-over Text

Banks approach to compromise as a recovery option will bebased on an analysis of the Banks strength and/ or

weaknesses in a given case. The parameters for such ananalysis are:

Quality of assets charged to BankCollateral cover i.e. its value and marketabilityMeans of borrower / guarantor (s) andState of legal action.

Banks approach to compromise as a recovery option will be based on an analysis ofthe Banks strength and/ or weaknesses in a given case.

The parameters for such an analysis are:

a) Quality of assets charged to Bankb) Collateral cover i.e. its value and marketabilityc) Means of borrower / guarantor (s) andd) State of legal action.


Screen No. 39

Lesson/ Screen

title Extent of Concessions

Voice-over Text

The extent of concessions which the Bank may extend whileaccepting a compromise offer will depend on a number offactors. The guiding principle, in all compromise cases, willalways be to realize maximum so that the Banks loss is theminimum. Based on the factors mentioned above anddepending on the merits of each case, any one or more of thefollowing concessions may be considered.All compromise proposals will clearly spell out the basis onwhich the negotiated amount of settlement has been arrivedat. All compromise settlement have the following three phases.

Click on each to know more.


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Whenever compromise proposals are entertained by the branches, the followingprocedures should be followed with regard to valuation of immovable propertiesmortgaged to the Bank in addition to the extant guidelines:-

a) The Branch Manager, Divisional Manager and the Field Officer (if posted)should personally visit and inspect the immovable properties and satisfy that

the valuation given by the valuer in his report is not altogether out of linewith the market rates prevailing in the area. The compromise proposal shouldcarry a certificate to this effect.

b) The valuation report given by the approved valuer if found to be in largevariance with the assessment make by the branch officials during personalvisits, the case should be referred to another approved valuer. The twovaluation reports received should be referred to the controllers for appropriateguidance.

Chapter/ Module Management of NPAs CompromiseSettlements

Screen No. 41

Lesson/ Screentitle

Debt recovery tribunal DRT cases: sale proclamation noticepublic auction - acceptance of compromise proposals

Voice-over Text

The debt recovery officer issues notice for setting saleproclamation and orders sale by public auction on completionof attendant formalities and after exhausting all avenues torecover the dues by other process like attachment, settlement,compromise tic., It is, therefore, emphasized that afterissuance of notification for public auction and eventual salethereof, branches should not entertain any request fromborrowers / guarantors or third parties nor agree forpostponement or cancellation of public auction for any reasonwhatsoever and more so without the knowledge or substantialrecovery of our dues including the costs of such public auction,poundage and expenses if any, incurred by the Tribunal.

The debt recovery officer issues notice for setting sale proclamation and orders saleby public auction on completion of attendant formalities and after exhausting allavenues to recover the dues by other process like attachment, settlement,compromise tic., It is, therefore, emphasized that after issuance of notification forpublic auction and eventual sale thereof, branches should not entertain any requestfrom borrowers / guarantors or third parties nor agree for postponement orcancellation of public auction for any reason whatsoever and more so without theknowledge or substantial recovery of our dues including the costs of such public

auction, poundage and expenses if any, incurred by the Tribunal.


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Screen No. 42

Lesson/ Screentitle

Quiz

Voice-over Text







answers.

1. The maximum installments period for compromise amount is 12 months.


Screen No. 43

Lesson/ Screentitle

Practice

Voice-over Text



Read the statements given below. Match the word to the

correct statement.



Read the statements given below. Match the word to the correct statement.


Documentation: After concluding the compromise agreement, the settlement willbe documented as appropriate as per legal requirement.

Screening Procedure: The committee system of screening / processing proposalsfor compromise will be followed.

Approving Authority: The authority approving the compromise will not be the onewho sanctioned the advance in question in his individual capacity.


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Screen No. 44

Lesson/ Screentitle

Overview

Voice-over Text

Following the acceptance of the recommendations of theBanks consultants related to the Banks structure, systems,

strategies, processes, etc., it has been decided that a revisedprocedure be followed for processing compromise / write-offproposals in the circles.

Following the acceptance of the recommendations of the Banks consultants relatedto the Banks structure, systems, strategies, processes, etc., it has been decided thata revised procedure be followed for processing compromise / write-off proposals inthe circles.

The procedure will be applicable to the following types of proposals:

i) Compromise proposals,ii) Proposals for write off of outstanding loan balances, including

unapplied interest,iii) Proposals for waiver/ withdrawal of legal action, put up prior to write-

off,iv) Proposals for waiver of execution of any decree put up prior to write-

off,v) Proposals for waiver of recourse to any security available for recovery

of loan put up prior to write-off.vi) The procedure prescribed will now be applicable to removal of

outstanding entries from the advances Under Collection Account(AUCA) relating to advances earlier written off.


Screen No. 45

Lesson/ Screentitle

Process of Screening Committees

Voice-over TextLets learn about the process of screening committees. Click onthe number 1,2,3 and 4.


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Lets learn about the process of screening committees. Click on the number 1,2,3and 4.

(i) The system of screening of proposals i.e. examination and recommendation by acommittee, will be applicable for all the categories of proposals mentioned in

previous slide.

(ii) The extant compromise committee at LHO will be discontinued in view of the factthat screening of the proposals for compromise/write-off, etc., to be approved byLocal Board (LB) and above levels, will be covered by examination of the proposalsby Circle Credit Committees (CCC) comprising CGM, GMs and Circle Credit Officer(CirCO). In this regard, based on RBIs stipulation covering compromise/write-offproposals to the effect that such proposals for sanction by ED/CMD/ManagementCommittee/ Board of a Bank should be first processed by a Committee of SeniorExecutives of the bank i.e. CGM/GM. It is decided that examination andrecommendation by CCC of compromise/write-off proposals for approval by LB andabove levels, will comply with this requirement.

(iii) The extant procedure of screening of proposals by a Committee at the lowerlevel will be continued with certain modifications. Under the revised procedure,proposals from the branches will be first examined and recommended by a ScreeningCommittee. The proposal will thereafter be submitted to the sanctioning authoritythrough the controllers, who will examine and recommend the proposal. Specificdetails of the revised procedure, applicable to proposals from branches in the twonetworks and put up for approval by different authorities.

(iv) The extant process will continue for appraisal, scrutiny, further examination andrecommendation of proposals of the category specified. There should be nodelayering in the handling of the proposals. Proposals from the branches in anetwork will be dealt with by the functionaries in the same network.


Screen No. 46

Lesson/ Screentitle

Quiz

Voice-over Text






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answers.

1. The system ofscreening of proposals will be applicable for all the categories ofproposals.


Screen No. 47

Lesson/ Screentitle

Practice



Select the correct options for the statements below. Click

Submit to check your answers.


far.

Select the correct options for the statements below. Click Submit to check youranswers.

1. The extant procedure of screening of proposals by a Committee at the lower levelwill be continued with out modifications - False2. The extant process will continue for appraisal, scrutiny, further examination andrecommendation of proposals of the category specified. - True

3. Under the revised procedure, proposals from the branches will be first examinedand recommended by a Screening Committee. - True


Screen No. 48

Lesson/ Screentitle

Assessment

Voice-over Text

Read the given questions carefully.Answer the question according to the type of the question.Follow the instruction given on each question.Click Next to move on to the next questions.Click Submit to submit your assessment.All the best!


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Read the given questions carefully.Answer the question according to the type of the question.Follow the instruction given on each question.Click Next to move on to the next questions.

Questions:

Key in your answers in the spaces provided.

1. The quality ofloan asset is the most important factor for the basic viability of thebanking system.

2. Risk taking is best defined as mixing courage with common sense.

3. Negotiations should not be undertaken with out options.

4. The maximum discount for doubtful or loss NPAs for a period of more than 10years is 75 %

Click True or False for the given questions.

1.There are four crucial elements for every negotiation. False2. Time has great bearing on the negotiation process. True

Choose the correct answer from the given options.

1. Power is defined as the capacity or the ability to get things done.

a) Powerb) Timec) Information

2. An initial deposit of atleast___% of the outstandings will be taken from theborrower as an evidence of his intention to pursue the compromise settlement.

a) 2b) 3c) 5

3. The ___________ must satisfy itself that all possible steps to recover the dueshave been taken and that compromise is in the larger interest of the Bank.

a) borrowerb) sanctioning authority

c) bank

4. The corporate policy is to contain the net NPAs below or equal to 1%,

a) 1 %b) 2 %c) 3 %


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Chapter/ Module


Screen No. 49

Lesson/ Screentitle

Summary

Voice-over Text Let us quickly recap what you have learned in this e-course.

Non Performing Asset means an asset or account of borrower, which has beenclassified by a bank or financial institution as sub-standard, doubtful or lossasset, in accordance with the directions or guidelines relating to assetclassification issued by the Reserve Bank of India.

The objectives of NPA management is: Maximum recovery of NPAs in the earliest possible time, and Gross NPAs below or equal to 2.27 % by March 2012.

The objectives of NPA analysis are as follows: To take stock of the situation, by building up the data base, Segregating the accounts into identical lots, with regard to

approach to be adopted for recovery , Prioritization as per prospects of recovery, and, Last, but not the least, for monitoring and control purposes.

Negotiation is a process by which two or more interested parties seek anacceptable exchange for the items they own or control.

The three crucial elements always present in every negotiation are:Power, time and information.

Competitive style which is so designed to maximize only one sidesadvantage, at a specific cost to the other. Clearly an aggressive stance, it

is referred to as a WIN-LOSE style of negotiation, since one side wins,and the other loses. Co-operative style which aims to ensure that both parties mutually benefit

from the negotiation. Hence, it is known as a WIN-WIN style. Compromise settlement refers to a negotiated settlement where a

borrower offers to pay and the Bank agrees to accept in full and finalsettlement of its dues an amount less than the total amount due to theBank under the relative loan contract

The basic determinants are causes for default, Need for a Compromise,Process of Compromise, Modes of repayment and Value of security.

The net loss comprises two components:Actual loss: representing the write-off amount, andNotional loss: representing the accrued but unapplied interest amount.

Under compromise, bank will endeavour to recover its dues to themaximum extent possible with minimum sacrifice after exercising its rightto set off and / or lien against any deposits of the borrower/guarantorlying with the bank.

Bank approach to compromise as a recovery option will be based on ananalysis of the Banks strength and/ or weaknesses in a given case.


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Screen No. 50

Lesson/ Screentitle

Course Completion

Voice-over Text

This brings us to the end of the course. Click the Exit button to

go back to the master screen.

This brings us to the end of the course. Click the Exit button to go back to themaster screen.